Surveys show most economists expect the ECB to again stand pat on interest rates, leaving its benchmark refi rate unchanged at 0.5%. It\’s not a certainty, however, and data last week that showed euro-zone annual inflation rose just 0.7% year-over-year in October, well below the ECB\’s target of near but just below 2%, is putting added pressure on policy makers to do something.

A strong euro, meanwhile, is seen making things harder for exporters while also adding to disinflationary pressures. Economists are warning that further appreciation by the shared currency could soon begin to take a toll on the euro-zone outlook, particularly the region\’s most-stressed economies.

The euro
has pulled back somewhat after hitting a two-year high above $1.38 in late October, but remains historically elevated as it continues to change hands above $1.35.

The ECB will announce its rate decision at 1:45 p.m. Frankfurt time, or 7:45 a.m. Eastern. The main event, however, is likely to be Draghi\’s news conference at 8:30 a.m.

While the ECB may be reluctant to cut rates, it could unveil a new round of long-term refinancing operations–cheap, fixed-rate loans to euro-zone banks–though there are big questions over just how effective that would be.

The lack of conventional options could be dragging the ECB reluctantly toward outright quantitative easing–a policy embraced by the world\’s other heavyweight central banks but so far eschewed in Frankfurt. But that won\’t happen just yet.

Still, for traders, ECB event risk is\”sharply higher than average\” due to disinflation fears, warns Stephen Gallo, European head of FX strategy at BMO Capital Markets.

At this point, a decision by the ECB to leave rates unchanged would probably have only a modest impact on the euro/U.S. dollar currency pair, he reckons, lifting it by around 0.20 point to 0.30 point A surprise quarter-point cut in the refi rate, on the other hand, could knock the euro down by 0.80 point to 1.5 points in the immediate aftermath, while a decision to take the refi rate to zero would probably sink the euro by 1 to 1.75 points, Gallo argued.

A very \”low delta, tail-risk outcome\” would be a cut in the refi rate accompanied by a decision to take the deposit rate–paid on deposits left overnight at the ECB and currently at 0%–into negative territory. Such a move would tack an additional 1 to 1.3 points of downside on to the euro, he said.

But in the end, it may all come down to Draghi\’s vaunted jawboning skills, namely, his ability to convince the market that the ECB is ready to do what it takes to battle disinflation, even if that seems to go against the central bank\’s hard-money roots. Analysts at Pavilion Global Markets in Montreal boil it down:

\”In our view, refi rate cuts on their own will have a mostly symbolic impact, as interbank market rates are already below the ECB’s target. Therefore, it is only with robust, verbal forward guidance that a refi rate cut can be truly stimulative. In other words, in order for another rate cut to have an impact on financial conditions, the ECB will need to convince markets that it will stay easy for a very long time – even if inflation were to turn higher (in other words, promise to be “credibly irresponsible”). This is not part of the ECB’s traditional modus operandi, but Draghi has surprised us before.

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